Improving policies and institutions in attracting ODA investment in vietnam

According to the Organization for Economic and Development Cooperation, the following definition has been defined: “ODA is an official transaction established with the purpose of promoti

E-ISSN: 2663-3159

P-ISSN: 2663-3140

IJFTIB 2020; 2(1): 115-120

Received: 08-07-2019

Accepted: 11-12-2019

Dr Nguyen Hoang Tien

Saigon International

University, Vietnam

Correspondence

Dr Nguyen Hoang Tien

Saigon International

University, Vietnam

Improving policies and institutions in attracting ODA

Investment in Vietnam

Dr Nguyen Hoang Tien

Abstract

At present, a lot of Vietnam's capital comes from the collection of state budget, government bonds, foreign borrowing and ODA In which, ODA is considered as the capital source with the lowest cost However, ODA is not a free source of capital for Vietnam They are often accompanied by mandatory conditions, such as the contractor of the ODA provider must carry out the project, or agreements on expert wages However, our public debt is very high, recurrent expenditure Increasing the remaining resources, how much to invest in infrastructure, promote economic development Therefore, Vietnam really needs this capital Over the past years, ODA flows into Vietnam have been plentiful and have contributed positively to socio-economic development Many completed programs, works and projects have been put into operation to serve the people's life, contributing to economic development Based on

an overview of ODA and current situation of ODA attraction and use in Vietnam we are able to assess the achievements as well as the outstanding problems and their causes The report proposes a number

of solutions for the improvement the effectiveness of ODA usage

Keywords: ODA, improvement, attraction, policy, government

1 Introduction

Integration with the developing world economy at a rapid pace, Vietnam continues to accelerate the process of industrialization - modernization of the country Vietnam is still underdeveloped; people's income is not high, starting from a low point Therefore, in order to develop the economy and implement the industrialization and modernization process of the country successfully, in addition to the domestic capital, the Party and the State attach great importance to external capital, especially the official development assistance (ODA) Originating from that practical need, ODA aid or "official development assistance" was established to help poor countries solve the shortage of capital

Japan from a losing country after World War II, the economy was exhausted, began to rebuild an economy thanks to foreign aid So far, Japan has not only risen to become the second economic power in the world but now leads the largest donor in the world for many consecutive years For developing countries, where facing many hardships, the assistance of developed countries Including Japan is absolutely necessary It is undeniable that Japan's ODA has contributed to addressing difficulties, especially capital in the process of economic transformation and reform, accelerating economic growth as well as improving life in recipient countries including Vietnam At the 8th meeting of Vietnam - Japan Cooperation Committee held in Hanoi, Japanese Foreign Minister Fumio Kishida affirmed that he would continue to strongly support Vietnam in developing socio-economic development through continued provision of ODA This ODA loan will help the Government of Vietnam to implement 4 programs and projects, including: North - South Expressway Construction Project, Danang - Quang Ngai section (30 billion yen); Project on constructing infrastructure

of Hai Phong international gateway port, Lach Huyen port, port infrastructure (32,287 billion yen) and bridge and road (22.88 billion yen); Supporting program to respond to climate change VI cycle (10 billion yen) Thus, Japan is the leading country in supporting ODA capital for Vietnam Most of Vietnam's major transport infrastructures receive ODA from Japan such as Can Tho Bridge, Road 5, Nhat Tan Bridge, Vo Nguyen Giap Boulevard, Noi Bai Airport, phase 2 This capital has become an important financial resource to invest in the development of socio-economic infrastructure areas, as a premise for industrialization and modernization of the country

For Vietnam, during the renovation process, the shortage of capital for development has been

partially resolved when Vietnam began receiving ODA aid

in 1993 More than twenty years of ODA loans have helped

Vietnam The country attains proud achievements: the

annual average GDP growth rate is over 7%, people's lives

are increasingly improved and not only achieve economic

achievements but also social-cultural life, education and

health have also been significantly improved, the political

situation is stable, national security and defense are

maintained, and international cooperation relations are

increasingly expanded ODA is indeed an important source

of capital for national development ODA has helped us

access and acquire modern scientific and technical

achievements, develop human resources, adjust economic

structures and create relatively modern socio-economic

infrastructure systems

However, the process of attracting, managing and using this

capital source in Vietnam is still limited compared to its

potential Since 2010, Vietnam has again become a lower

middle-income country, with non-refundable foreign

investment tending to decrease Therefore, strengthening the

effectiveness of management and use of official

development assistance (ODA) is an issue Harmonization

can only succeed if the partner country assumes ownership

of the whole effort (Regional Harmonization Workshop,

2003) Stemming from the above thoughts, the topic

"Improving policies and institutions in attracting ODA

investment in Vietnam" was selected for the research in this

article

2 Theoretical framework

2.1 Definition and characteristics

2.1.1 Concept

Official Development Assistance (ODA) is an official

development assistance organization or official development

assistance ODA is a form of development assistance of

Governments, international organizations,

non-governmental organizations that are bilateral or multilateral

in nature, including amounts that agencies and Government

aid are not refundable (for free) or lending under favorable

financial conditions (Do Duc Binh, Nguyen Thuong Lang,

2010) [2] According to the Organization for Economic and

Development Cooperation, the following definition has been

defined: “ODA is an official transaction established with the

purpose of promoting the socio-economic development of

developing countries The financial condition of this

transaction is of a concessional character and the grant

element constitutes at least 25%” According to the

Development Assistance Committee: "Official development

assistance (ODA) is an official source of external assistance,

including grants and concessional loans, which is

interpreted as funding for developing countries and

underdeveloped, funded by central and local government

agencies or government executing agencies,

intergovernmental organizations, non-governmental

organizations” ODA funding arises from the necessity of a

country, a locality, an industry, is considered and committed

to grant funding by an international organization or a

country, through an international agreement authorized by a

competent representative The two parties received support

for the signed capital This supportive international

agreement is governed by international law According to

the "Development Cooperation 1998 Report" of the United

Nations Development Program (UNDP), "Official

development assistance is defined as support sources for

developing countries from multilateral organizations of official agencies, the Government and local governments or government governing bodies” Pursuant to Decree 17 / CP

of May 4, 2001 replacing the Government's Decree 87 / CP

of August 5, 1997 on the Regulation on "Management and use of official development assistance capital "Then: Official development assistance (ODA) is understood as a development cooperation between the State or Government

of the Socialist Republic of Vietnam and a donor According to the World Bank (WB, 2000): Official development assistance, including grants, plus long-term loans and lower interest rates than market rates The level of favor on a loan is measured by the free element - Grand element A non-refundable grant will have a 100% free element, called grant aid A concessional loan considered ODA must contain at least 25%

2.1.2 Characteristics a) The preference of ODA capital

In ODA, there is always a significant part of non-refundable aid (ie giving away) The loans are mainly concessional loans with interest rates much lower than normal credits (usually below 3%) The level of incentives is more or less expressed in interest rates, grace period and repayment period An ODA loan usually has a long life, usually from

20 to 50 years, depending on each donor, including two parts Firstly, the grace period is from 5 to 10 years Second, the repayment period is also diverse, including many stages and different debt ratios in each period However, in order

to be classified as ODA, a loan must have a minimum of 25% non-refundable The zero factor is the basis for evaluating the concessional level of a loan The giving factor is not determined based on the comparison with commercial credit interest rates (usually taking the standard

of 10% per year)

b) ODA is tied to political factors

During the Cold War, ODA was used to entice allies due to the East-West confrontation, between the capitalist and socialist system After the fall of socialist systems in Eastern Europe and the former Soviet Union, Western countries used money to help them in the transition to a market economy ODA is influenced by the relationship between the donor and recipient The geographical-political nature of aid provision is clearly stated Aid often prioritizes the provision of economic, political and military allies

c) ODA is associated with economic conditions

Aid providers generally want to achieve economic and economic impacts Often these countries link aid to their purchases of goods and services, as a means to enhance their ability to penetrate and control export markets According to the DAC report, 17.7% of DAC's bilateral aid in 1997 must

be devoted to purchasing goods and services from the donor country In particular, countries such as Germany, Italy require about 40%, Canada requires 68.5%, France is 25.1%, the UK is 13.8% and Spain is 100% of the aid that must be used to buy main goods and services offered by these countries But receiving grant aid does not bring long-term benefits to the recipient When aid is in the form of technical assistance, technology with equipment cannot be replaced by equipment from other countries, forcing the recipient country to depend on the country for a long time

In addition, the risk of aid currency when there are adverse

fluctuations in exchange rates makes debt repayment

obligations of recipient countries more severe Usually, the

receiving country does not have the right to choose the

currency of the loan, which is determined by the issuing

party For example, Japan stipulates that it can only borrow

money in yen The exchange rate between USD and Yen in

the 1960s was about 1 USD = 100 Yen Thus, Japanese

borrowing countries have to pay a triple amount due to the

appreciation of the Yen after 30 years

d) ODA is tied to social factors

ODA is partly extracted from GNP of donor countries, so it

is very sensitive to public opinion in donor countries In

general, people of OCED countries always support those in

need, 80% of Europeans think that EU development budget

needs to be increased In countries providing ODA less than

0.7 GNP, more than 70% of people believe that the

government should increase its development assistance

budget In addition to the amount of aid, people in aid

countries are also concerned about the quality of aid In

many countries, people are asking the government to cut aid

to focus on addressing difficult domestic issues and appear

to be concerned about problems in the provision of aid, such

as slow project reception, low project results, the recipient

fails to comply with commitments and signs of aid

corruption by officials On the contrary, in recipient

countries, people are also hesitant to receive aid and are

afraid of adverse impacts on life, identity and national

cultural traditions

2.2 Classification

2.2.1 According to the repayment method

Non-refundable aid: The foreign party provides aid (which

the recipient is not required to return) for the recipient to

execute the program or project according to a prior

agreement between the parties Non-refundable aid is

usually provided in the form of: technical assistance and

in-kind aid

Grants refunded: Donors need to borrow money from a

country (depending on the size and purpose of the

investment) with a favorable interest rate and appropriate

repayment period The preferential conditions are usually:

Low interest rate, long loan term (from 20-30 years), and

grace period (from 10-12 years)

2.2.2 According to supply

Bilateral ODA: Direct aid from one country to another

through an agreement signed between the two Governments

Multilateral ODA: Official aid of an international

organization (IMF, WB, etc.) or a regional organization

(ADB, EU) or a Government of a country for a Government

of any country However, it can be done through multilateral

organizations such as UNDP, UNICEF, etc

2.2.3 According to the target of use

Balance of Payments support: Including ODA provided to

support the Government's budget, usually through: Direct

transfer to the recipient country or import assistance

Trade credit: Similar to commodity aid but with conditions

attached

Program aid: Aid and recipient countries sign an agreement

for a general purpose without determining exactly how the

aid will be used

Project aid: accounting for the largest proportion of the total

ODA implementation capital Conditions for receiving project aid are: "Must have specific projects, details of the items that will use ODA

2.3 The role of policy institutions to attract, use and effectively manage ODA

At present, our country has become a developing country with middle-income status, so the policy of ODA and concessional loans of foreign donors to Vietnam will have fundamentally changed from development aid to partnership The policy orientation and solutions to ensure the effective mobilization and use of ODA and concessional loans of foreign donors have contributed to the successful implementation of the Economic Development Strategy - society for 10 years from 2011 to 2020 and a 5-year socio-economic development plan from 2016 to 2020 Strategic orientations, policies and synchronous solutions to institutional improvement, organization and management capacity building manage and implement ODA and concessional loans of foreign donors in order to effectively use signed aid and mobilize new aid for the period after

2020

Not only does the National Assembly pay attention to the effectiveness of ODA use, but the National Assembly's Committees also organize specialized monitoring of the quality and effectiveness of investment projects using ODA and concessional loans in specific areas This is an encouragement and at the same time a request of the National Assembly for state management agencies on ODA and concessional loans, ministries, branches and localities must ensure the attraction, management and use to ensure investment efficiency, project quality and in accordance with the provisions of law; proactively prevent and strictly handle negative behaviors, corruption, waste and ensure public debt safety

The Government has issued Decree No 38/2013 / ND-CP

on management and use of official development assistance (ODA) and concessional loans of donors replacing Decree

No 131/2006 / ND-CP This Decree has made many progresses towards compactness and lightness to reduce transaction costs Drastic direction and administration of the Government to accelerate the signing, implementation and disbursement of ODA programs and projects and concessional loans to enhance the preparation and implementation of programs, ODA projects and concessional loans, speeding up key and large-scale investment projects which are behind schedule to improve the implementation and raise the disbursement rate of programs and projects

National Steering Committee on ODA and concessional loans was established under Decision No 216 / QD -TTg dated January 23, 2013 After more than 5 years of operation, the Steering Committee has actively promoted its role to solve difficulties and problems of programs and projects to improve the implementation situation and accelerate the disbursement progress organizing the field trip to promptly catch and remove obstacles, the Steering Committee also established a coordination mechanism with Group 6 Development Bank (WB, ADB, AFD, JICA, KEXIM, KFW) periodically organize joint reviews meetings on the implementation of construction projects and organize the implementation of action plans to improve the implementation situation and accelerate the disbursement of ODA capital, including harmonization and streamlining the

procedures and procedures between the Vietnamese side and

the donors of interest and attention

3 Research methodology

With the objective of contributing to promoting policies and

institutions to attract foreign investment, special attention is

paid to ODA capital, proposing solutions to improve

government policies and institutions in attracting ODA

investment in Viet Nam The authors used the information

collection and analytical methods used primarily in the

paper Information collected through many channels such as

book materials, newspapers, economic-financial magazines,

information from the media and reports over the past years

The analytical method is from the use of collected

information, combined with the method of summarizing,

statistical, analyzing, comparing and comparing, from which

the comments on the issues of attracting capital are obtained

to propose solutions to improve the institutional and policy

to attract ODA investment in Vietnam

Objectives of the study: To analyze policies and institutions

in attracting ODA investment in Vietnam, propose research

models on the topic, and propose solutions to improve the

policy institutions in attracting ODA investment in Vietnam

The object of this paper is the source of ODA investment,

how to attract ODA investment, the government's policy

institutions on attracting ODA, and solutions to improve

these policy institutions

4 Research results and discussion

4.1 Current status of institutions and policies in

attracting ODA investment in Vietnam

Total ODA and concessional loans signed according to

specific international agreements in the period of 2011 -

2015 as of December 25, 2015 reached over 27,782 billion

USD, 31.47% higher than the level of 2006 period - 2010,

in which ODA loans and concessional loans reached USD

26,527 billion, accounting for about 95.48% and

non-refundable aid reached USD 1,254 billion, accounting for

about 4.52% of the total ODA and concessional loans

signed for this period The structure of ODA and

concessional loans by donor is shown in Figure 1 below It

is easy to see that the sponsors of ADB, AFD, JICA, KfW,

KEXIM and WB still occupy a dominant position The total

value of ODA and concessional loans signed with these

donors during the period of 2011 - 2015 is about USD

26,308 billion, of which about USD 4.5 billion is from

concessional loans from ADB, AFD and the World Bank

According to the Ministry of Planning and Investment, the

implementation and disbursement of ODA programs and

projects and concessional loans, though having positive

changes, are still slower than the committed progress In

addition, the disbursement level across sectors, fields and

localities is not even The disbursement for major cities such

as Hanoi and Ho Chi Minh City is much higher than other

localities The management and use of ODA also has some

limitations The most general drawbacks and weaknesses

can be mentioned, namely that the capacity of managing and

using ODA capital at national as well as at sectoral and local

levels has not met the requirements Besides, the time to

review and approve the funding list of agencies before

submitting to the Prime Minister is still long, there are still

many problems related to the regulations on capital

withdrawal management or related to the use of ODA and

concessional loans for items of regular spending for

development cause; related to the domestic financial mechanism for ODA and concessional loans; Differences in procedures and procedures between Vietnam and the donor Facing the new requirements of development cooperation, the development of the ODA Project 2016 - 2020 to implement the five-year socio-economic development tasks 2016-2020 by the 12th National Delegation of Vietnam The Party set out, the Party and the State advocated based on their own strength, and actively and actively mobilized foreign capital sources, including official development assistance (ODA) and concessional loans continues to have

an important role The total amount of ODA and concessional loans that have not been disbursed from programs and projects that have been transferred from

2011-2015 to 2016-2020 is quite large, about 22 billion USD Therefore, one of the key tasks in the 2016-2020 period is to concentrate highly to complete these programs and projects according to the committed schedule and time limit, putting works into operation, meeting the country's socio-economic development requirements According to incomplete reports

of ministries, sectors and localities, the total demand for mobilizing and using ODA and concessional loans in the period 2016-2020 is very large, about 39.5 billion USD Capital needs for the projects mainly focus on transportation, urban development, agriculture and rural development, environment, education and training, health care, science and technology The attraction, management and use of ODA and concessional loans must be considered, balanced and selected in the overall development investment capital sources, must closely follow the objectives of the public debt strategy and national external debt period 2011 -

2020 and vision to 2030, Socio-economic development plan, Medium-term public investment plan and 5-year financial plan 2016 - 2020, ensuring public debt indicators, government debt and the level of state budget overspending within limits

4.2 Some measures to improve institutional and policies

to attract ODA capital

Foreign investment capital in general and official development assistance capital in particular are very important ODA has contributed significantly to the achievement of socio-economic achievements of the country In order to be able to attract and effectively use ODA resources in socio-economic development, specific and comprehensive measures must be taken In order to attract and effectively use ODA in the coming time, especially in the context that Vietnam has become a country with income level, the following issues need to be done: First, it is necessary to raise awareness and understand the true nature of ODA: ODA should be considered an additional resource, not a replacement of domestic resources for each beneficiary level It is also important to improve the autonomy in mobilizing and using ODA to meet the national, sectoral and local socio-economic development, and to improve the efficiency of ODA use

Second, we need to use ODA selectively, appropriately and harmoniously with other investment sources In fact, the main policy debates are no longer on whether or not to attract ODA, but rather on how to maximize the benefits of ODA Therefore, the quality of ODA attraction will be more important than the amount of ODA

Thirdly, it is necessary to accelerate the speed of ODA State agencies in charge of ODA should continue to

improve institutions and procedures to shorten the time for

approval by the Vietnamese side Officials, branches and

localities should enhance the completion of the planning

work in the direction of minimizing the change and

adjustment of investment projects with ODA capital

Fourth, to maximize the effectiveness and spillover effects

of ODA, the mobilization and utilization of ODA must be

based on the correlation of the costs and benefits of

programs and projects to ensure that This process and

project is highly effective, creating maximum spillover

effects and contributing to economic development Another

important issue is to avoid the widespread and lengthy use

of ODA, leading to a debt burden for the country

Fifth, expand the scope of ODA beneficiaries to the private

sector to implement programs and projects to serve the

public interest Mobilizing the participation of beneficiaries

is an important way to ensure that ODA funds are used

publicly, transparently, effectively and avoid loss, waste and

corruption

Sixthly, building a reasonable plan for ODA

decentralization, decentralizing ODA management and use

is an irreversible process in the world as well as in Vietnam

It is important that Vietnam needs to identify

decentralization From this perspective, the results and

decentralized experiences of the recent period need to be

considered A set of criteria for ODA decentralization

including project implementation time and cost, ODA

management capacity and operational efficiency also needs

to be developed

Seventh, strengthening monitoring and management of

ODA, including the following solutions:

▪ Ensuring the uniformity, consistency, clarity, simplicity

and transparency of the legal system related to ODA

management and use;

▪ Strengthen government's anti-corruption efforts;

▪ Promote administrative reform and efficiency of the

main state goods;

▪ Enhancing professional training and retraining of

project managers;

▪ Improving financial policies for ODA including

implementation of foreign debt management and

ensuring open tax policy for ODA programs and

projects;

▪ Strengthen ODA management according to state budget

law

Eighthly, developing an ODA plan with a short repayment

period and close conditions, experience from ASEAN

countries and China shows that the amount of ODA

mobilization depends on the level of economic development

in each period ODA tends to decrease in ASEAN countries

and per capita Vietnam also needs to start studying plans

and strategies to gradually reduce ODA, especially

conditional ODA, while increasing the attraction of capital

5 Conclusion and recommendation

Obviously, the attraction of official development assistance

(ODA) is always an important issue not only for Vietnam in

particular but also for developing countries or poor and

underdeveloped countries in the world in general ODA is

not a free of cost capital It can benefit the recipient country

and cause losses such as debt repayment burden if it cannot

be used properly and effectively Therefore, ODA attraction

must always be associated with the most efficient use of this

capital source

In fact, in recent years, Vietnam has attracted a lot of ODA This is a great advantage of Vietnam But up to 80% of ODA has been borrowed, which is paid, must be paid So, how to choose the investment plan to best promote the huge amount of loans, and then implement them in the most economical and economical way If we still keep the ideology of enjoyment, and the payment has been generated

by the next generation, the ODA will never be used effectively Therefore, it is very important and necessary to quickly adopt measures and policies to improve the attraction and use of ODA capital of the Government In order to develop the economy at a fast pace while small-scale economy is seriously lacking in capital, foreign capital sources such as ODA are perfectly suitable With the current growth momentum of Vietnam in the future, it will need to attract a lot of support from the international community through ODA However, much attraction must be accompanied by efficient use Although in recent years Vietnam had made a lot of progress in attracting and managing ODA, it is still not enough compared to the requirements of the country's renovation Therefore, it is necessary to improve, continuously and continuously renew this work so that Vietnam is always a reliable destination of the international aid community

6 References

1 Duong Duc Ung, CCBP: ODA harmonization process / ODA effectiveness

2 Do Duc Binh, Nguyen Thuong Lang, International Economics Curriculum, UEB, 2010

3 Doan Thi Phin, Deputy Director, TSDI, Ministry of Transportation: ODA and Transportation sector

4 Han Manh Tien, CONCETTI: ODA Management structure in Vietnam, 2007

5 Nguyen Quang Thai General Secretary of Vietnam Economic Association: The role of ODA in the socio-economic development process - Strategy for ODA utilization in Vietnam, 2010

6 Pham Hoang Mai, Deputy Director General, FERD / MPI: Strategy for Japan ODA utilization in Vietnam

7 Vu Ngoc Uyen The impact of ODA on Vietnam's economic growth Doctoral thesis, 2007

8 Vu Thi Kim Oanh Attracting and using Australia's official development assistance ODA to Vietnam Masters thesis, University of Economics, Vietnam National University, Hanoi, 2002

9 Vietnam, 2010, Toward the 21st Century Vietnam Development Report, jointly prepared by the World Bank, ADB, UNDP, Hanoi, 2000

10 Decree, No 56/2009 / ND-CP dated June 30, 2009 of the Government on supporting the development of small and medium enterprises, 2009

11 Orientations for attracting and using official development assistance (ODA) in 2006-2010

12 Some directions for Japanese assistance to Asia Socio-Economic News, No 5/2000

13 Creating the foundation for sustainable development (Government report at the Donor Consultative Group Meeting for Vietnam)

14 Ministry of Planning and Investment, 2015, Orientation

of attracting, managing and using ODA and other concessional loans of donors in the period 2016-2020

15 The Government, 2013, Decree No 38/2013 / ND-CP

of the Government on the management and use of

official development assistance (ODA) and concessional loans from donors

16 The Government, 2006, Decree No 131/2006 / ND-CP

of the Government: Promulgating the Regulation on management and use of official development assistance

17 The Government, 2016, Decision 251 / QD-TTCP of the Prime Minister approving the project “orientation of attracting, managing and usingoda and concessional loans of foreign sponsors in period 2016-2020”

18 Manual Japan’s ODA Procedures in Vietnam - Program / Project mobilization & Preparation (Draft Version),

2010

19 Report of the Regional Preparatory Workshop on Harmonization Hanoi, Vietnam, 2003, 22-24